Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn
A)positive profits.
B)zero profits.
C)losses but will remain in business.
D)losses and will shut down.

Question

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-5. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn
A)positive profits. 
B)zero profits. 
C)losses but will remain in business. 
D)losses and will shut down.

Quizplus · Accepted Answer

If the market price is between P1 and P4, individual firms will be earning a price higher than their average variable cost (AVC) but lower than their average total cost (ATC). This means that they will incur losses but will still continue to produce in the short run as long as they are able to cover their variable costs. Thus, the best choice is C, losses but they will remain in business.

Figure 14-5 Suppose a Firm Operating in a Competitive Market Has the Has